Episode 31: Climate Change Across the Country

In this episode, a panel of guests from PwC's Sustainability Practice across the country join Helen and Calum to discuss what the different policies and compliance issues are provincially, when it comes to climate change.

Episode 31 transcript:

Voiceover: Welcome to Strategy Talks, the business podcast series by PricewaterhouseCoopers Canada. Hosted by Helen Mallovy Hicks, National Leader of PwC’s Dispute Analysis and Valuations Practice, and Calum Semple, an Operations and Consulting Partner. This interview series, featuring new topics and guests every episode, is designed to valuable insight into some of today’s hottest issues affecting your business.

Helen: Sustainability and climate change are certainly hot topics. Today we will discuss the different climate change regulations that are occurring at the provincial level. In particular, we would like to address those regulations that affect large final emitters. We have climate change specialists from across the country on the line today and we want to gain their perspective on when these regulations changes will occur, what the basic requirements are, whom this affects and what you can do to prepare. Joining us today from across the country, we have Christine Schuh who is our Climate Change Services Leader. She’s in Alberta. We have John Webster in BC, Wendy Potomski in Ontario and Pierre Taillefer in Quebec. Welcome all.

Guests: Thank you

Calum: So, let’s start with BC, John, and then we’ll move across country for each of the questions. Can you provide us with a quick summary of the climate change regulations in your province?

John: Sure. In November, the Ministry of Environment released the reporting regulations under the Greenhouse Gas Reduction Cap and Trade Act and that was really to provide a reporting framework to support the introduction of a proposed cap and trade system. It’s estimated that around 200 facilities across BC will be required to report under the regulations and they’ll be accompanied by a guidance materials quantifications methods manual and a verification manual in future. Really, the purpose is to allow BC to fulfill its commitments and obligations under the western climate initiative, in which we are one of the signatories. It’s really going to be a form the basis for BC to implement an effective cap and trade program.

Calum: Now moving on to Alberta, Christine, perhaps you can give us the lay of the land that adverse some of the thresholds that Johns’ been talking about in BC.

Christine: Sounds Good. To start off, Alberta has had climate change regulations in place since 2007. It’s a slightly different design than most of the other provinces in that it’s a baseline and credit system, rather than a cap and trade system. Its threshold is currently set at 100,000 tons of greenhouse gas emissions per annum, instead of BC which is 10-25, depending on what you are looking at.

Helen: Wendy, why don’t you tell us what is happening in Ontario?

Wendy: Unlike Alberta, Ontario still does not have caps set for their emitters in Ontario. However, back in May of 2009 the Ontario government issued Bill 185 which was their Environmental Protection Act, which was the first attempt to establish the first cap and trade mechanism within Ontario. So this legislation outlined what it would mean to be part of a cap and trade system and it would allow them to link to the other provinces, like the US and the provinces of Quebec. What they have done subsequent to that is in Dec, they’ve issued a new regulation that requires facilities emitting over 25000 tons of carbon dioxide equivalent per year to start to report their emissions.

So this is the first attempt to start reporting and I think that we are a little bit further behind than where BC is right now and it’s a 25000 tons not the 10,000 which is in BC, so it’s a little different. That is what’s required to be reported. However, the provincial government is trying to encourage facilities to report as low as the 10,000 which is what is in BC. To start volunteering reporting. Probably because they are going to move that cap down further in the future to get people ready. Starting in 2011, they’re actually going to have to have their emissions verified by a third party verifier, just as in BC. The Ontario government estimates between 200-300 facilities within the province will be impacted by this new regulation. To date, there’s been about 85 facilities in Ontario that have been reporting into the Federal requirements and that was at 100,000 CO2 a year. So this drop down to 25,000 tons per year, really has added another 115-215 facilities. Since this is one of the first attempts to do this at the lower level, they’re not quite sure who’s affected and this is causing some concern in the market where facilities who weren’t reporting before may now need to start reporting and they may not know that they need to start reporting.

Pierre: There is one difference for Quebec that is interesting in terms of the cap of 25,000 tons of CO2 is that in Quebec the regulation looks at the idea of lifecycle which means an emitter is not only responsible for their emissions, but they are also responsible for their emissions in the supply chain and in the use of the product. So we don’t really have an idea of what the impact is going to be in terms of the number of companies that will be required to comply with regulation.

Calum: Pierre, how would you go about measuring that? It seems like it would be a pretty complex situation to capture.

Pierre: Well, it is very complex and it’s very difficult to measure. I would think on the suppliers side, well both sides, supplier and client side, it is difficult because the other regulation across the country is really based on what companies controlled what processes where there is consumption of energy fuel, oil, etc. that they control and therefore can have an influence on how they consume and how they can change their consumption to decrease the carbon emissions. The concept of lifecycle for Quebec is on where the company doesn’t control the consumption of electricity or energy and it makes the calculations for the company that needs to comply with the regulation quite complex.

Calum: Would somebody be able to sidestep that if they use foreign suppliers?

Pierre: Well, normally not according to the regulation and Quebec is part of the Western Climate Initiative. Quebec is implementing a reporting requirement for companies emitting cover 10,000 tons of CO2 for 2011 and then normally creating a cap and trade market for companies with over 25,000 tons of emissions for 2012. So the regulation is similar, the difference is the lifecycle portion and normally they wouldn’t be able to side track that by using external or foreign suppliers or selling to foreign clients. That’s a part for the regulation, or that part is yet to be seen how it is going to be applied because it is a difficult application.

Helen: So Pierre, the regulations in Quebec, who do we think it is going to affect?

Pierre: It’s going to affect aluminum companies, it will affect mines, paper, manufacturing, chemical products. The organizations or companies industries similar to other provinces, one of the major differences in Quebec is aluminum manufactures, smelters that will be subject to the regulation.

Calum: So we have gone through each province and we had an understanding of what the regulations are for each or at least some of that. Now the media talks about a National Securities Regulator, kind of begs the question. We are talking about the environmental and climate change, yet all we have at the moment is these provincial regulations, or that what it seems like to me. Would a National Regulator be someone who can foster the thing forward on a more consistent basis?

Helen: Christine?

Christine: (laughs) You’re absolutely right. A National Regulator would help foster and move this initiative forward. But what’s happening right now, is that the National Climate Change Strategies and National Regulations are heavily tied with the US because they want to create a market that is at least North American in scope. And because the US climate change initiatives have waned a little bit, so has the Canadian ones.

Calum: And when you say they are waning I suspect that is largely because of what is going on in the economy?

Christine: There’s a couple of things that are going one. One is the diversion because of the health care reform that is going on. The other is because of the economics and the economy. So those two things are taking priority over climate change right now.

Calum: And I assume as things get back on track and they need to be at a more national level, it would probably be a more consolidation effort here or how do you think that is going to play out?

Christine: I think the overall goal for everyone is to have actually a global market. Not just even a North American market, but a global market. Consolidation is, I think, inevitable if this occurs, but what we are seeing is a highly fragmented market emerge right now to try to deal with the fact that the federal governments are not coming up with regulations and legislations in this area. So, that is why you see, BC, Alberta, Ontario and Quebec have very different climate change regulation and legislations.

Helen: So, I guess we’ve talked a little about the changes in regulations across the country. Maybe we can go across the country again and talk about the trends that you are each seeing in your respective geographies in terms of preparing for the regulations. What kind of advice can we give to our listeners on things like preparing greenhouse gas inventories, or data management systems, GAAP analysis, risk analysis, etc. and maybe, John, we can start with you in BC again.

John: Yeah, I mean, really because this regulation is so recent in BC people under rules, frankly, were and the thresholds were so low compared to what we saw in Alberta, that one of the big issues is just understanding who will be affected by this and making sure that we reach out to those organizations that have facilities at the 10,000 ton level to make sure that they are aware of their responsibilities and how they can comply with the rules.

Helen: Christine, how about in Alberta? What sort of trend are you seeing in preparation for the regulation changes or what sort of advice do you have for our clients there?

Christine: Well, it’s a different scenario because we have had regulations for a couple of years but what we do know is that these regulations are going to change. We do see changes in our clients because of that. We know the thresholds are going to drop, we know that they compliance costs are going to increase. What we are helping our clients do is be more efficient in reporting, this means installing better data management systems and processes and getting more controls around the completeness and accuracy of your data. We also see more strategy come to the table in terms of how we are going to comply with the regulations? What kind of strategy are we going to have in the long term? Are we going to rely on offsets? Are we going to continue to contribute to the technology fund? We even see things like investing in carbon capture storage as a strategy as well. So these are the things that we’re seeing in our market place.

Helen: Does this strategy have a significant impact in cost of compliance?

Christine: Yeah, it does actually. The best way to look at this is when you develop your strategy one of the first thing that you have to take care of in your strategies is your compliance, and then you look at optimization and future roles and procedures you want to put in place.

Calum: Wendy, if we look at Ontario, what kind of trends are we seeing here?

Wendy: Well, many of the facilities that are currently reporting or may need to report under this are facilities that are part of large multinational organizations and many of these org have been required to report a variety of environmental indicators, like the mining industry. So one of the things that we’re working with our clients to do is a GAAP assessment to really understand what’s required in Ontario and then ensure that whether they have existing data management systems in place, ensure that, as Christine said, that there is an efficient way to do this and so that the burden of reporting several different ways the same information is minimized through this automated system. With verification required in Ontario, the data management system will be a key component to ensure controls over this data, and as Christine said, there are some requirements to report, so company officials will want to ensure that this information is accurate.

The other key thing that kind of leads into this is in Ontario we are really pushing the green economy and green energy so we are really pushing towards that. So, organizations are trying to get more green power and energy onto their sites and they’re becoming more environmentally conscience with their use of fuels and this goes to Christine’s strategy. So we are trying to take a holistic view of this, not only to reduce costs in our manufacturing sector, but also reduce emissions.

Calum: Christine, do you think that proactive companies are preparing for regulations today, even though they might not know what the future of the standards are going to be?

Christine: Well, without information, you’re not sure where you stand. So the proactive companies are gathering the right data now, compiling it for either voluntary perspective or for required reporting. Without that data, you won’t know where you are and with that data you will be able to proactively address anything coming in the future, so you are better prepared.

Calum: So your baseline is getting your data management setup and then your strategy from there.

Christine: Yes. Without that information you don’t know what your decisions to make or where you should respond or how you should respond. So the key is data and getting it as accurate as possible and gathered in the most efficient way possible through a data management system and that is what we’ve been trying to help our clients do, is get ready for the future.

Calum: Yeah. Are we seeing the same things in Quebec that Wendy’s described in Ontario or are seeing things that are very specific to the Quebec market place?

Pierre: I think we’re seeing activity within organizations is very similar to what is going on in the rest of the country. It’s varying in terms of the number of companies that are prepared that understand their carbon footprint versus those that don’t.

There are certain number who have already gone through the process of implementing and calculating their emissions and some haven’t because they are waiting to really understand what the regulation’s going to be and what the requirement of the regulation is going to be in terms of implantation and also in terms of reduction. There’s something that I’ve seen recently, a number of conversations I’ve had with client who really focused on let’s not worry about the regulation, but let’s understand what our carbon footprint is because there is value in understanding what their footprint is, and not necessarily from a regulatory perspective but more from an efficiency perspective, energy efficiency, reducing consumption in order to save on costs for organizations. So that is something that I have seen quite a bit lately, it’s regardless of regulation we should be understanding what our footprint is and that is what a lot of companies are doing.

Calum: We’ve talked about different provinces today. There seems to be some commonalities among them. As some parting comments to our listeners, Christine, perhaps you can just summarize two or three of those points, I think that would be very beneficial.

Christine: All right. So the first thing I would talk about is the fact that we have regulations coming in to four of the major provinces across Canada and we expect them to roll over into other provinces as well. So I think that companies should be expecting climate change in the new future no matter where they operate in Canada. The second thing that I think companies should be aware of is that the uncertainty about regulations should not stop them from understanding their carbon footprint and developing at least a preliminary carbon strategy.

That carbon strategy may be a wait and see situation depending on where they are in the country or it may be more proactive than that. The third thing is developing the stuff is not easy and there is certainly uncertainty in quantification methodologies and measurement methodologies and it really does help to have an experienced professional assistant you with this stuff.

Calum: Well, thank you John, Christine, Wendy and Pierre for sharing your perspective on climate change with us. To read more about the impact of this issue, please read more about the climate change newsletter, The Forecast which can be downloaded from our webpage at pwc.com/ca/climate change.

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Hosted by Helen Mallovy Hicks, a Partner and National Leader of the Dispute Analysis & Valuations Group and Calum Semple, a Partner in the Operations and Consulting practice, Strategy Talks is a series of audio podcasts that explore key issues affecting businesses in Canada, and share strategies that companies can use to help address them.